Carrizo Oil & Gas Announces Second Quarter Results

Published 6:30 AM ET Tue, 8 Aug 2017
Globe Newswire

HOUSTON, Aug. 08, 2017 (GLOBE NEWSWIRE) -- Carrizo Oil & Gas, Inc. (Nasdaq:CRZO) today announced the Company’s financial results for the second quarter of 2017 and provided an operational update, which includes the following highlights:

Crude oil production of 33,629 Bbls/d, 40% above the second quarter of 2016

Total production of 51,019 Boe/d, 23% above the second quarter of 2016

Net income of $56.3 million, or $0.85 per diluted share, and Net Cash Provided by Operating Activities of $102.7 million

Adjusted Net Income of $20.0 million, or $0.30 per diluted share, and Adjusted EBITDA of $111.9 million

Previously-announced acquisition of Delaware Basin properties remains on track to close by mid-August

Carrizo reported second quarter of 2017 net income of $56.3 million, or $0.86 and $0.85 per basic and diluted share, respectively, compared to a net loss of $262.1 million, or $4.46 per basic and diluted share in the second quarter of 2016. The net income for the second quarter of 2017 and net loss for the second quarter of 2016 include certain items typically excluded from published estimates by the investment community. Adjusted net income, which excludes the impact of these items as described in the non-GAAP reconciliation tables included below, for the second quarter of 2017 was $20.0 million, or $0.30 per diluted share compared to $17.1 million, or $0.29 per diluted share in the second quarter of 2016.

For the second quarter of 2017, Adjusted EBITDA was $111.9 million, an increase of 15% from the prior-year quarter due to higher production volumes and commodity prices, partially offset by lower cash receipts for derivative settlements. Adjusted EBITDA and the reconciliation to net income (loss) are presented in the non-GAAP reconciliation tables included below.

Production volumes during the second quarter of 2017 were 4,643 MBoe, or 51,019 Boe/d, an increase of 23% versus the second quarter of 2016. The year-over-year production growth was driven by drilling activity in the Eagle Ford Shale and Delaware Basin, the addition of production from the Sanchez property acquisition in late 2016, and an increase in Marcellus Shale production given improved netbacks. Crude oil production during the second quarter of 2017 averaged 33,629 Bbls/d, an increase of 40% versus the second quarter of 2016; natural gas and NGL production was 74,451 Mcf/d and 4,982 Bbls/d, respectively, during the second quarter of 2017. Second quarter of 2017 production exceeded the high end of Company guidance.

Drilling and completion capital expenditures for the second quarter of 2017 were $148.4 million. More than 85% of the second quarter drilling and completion spending was in the Eagle Ford Shale, with the balance weighted towards the Delaware Basin and Niobrara Formation. Land and seismic expenditures during the quarter were $34.4 million, and were primarily focused in the Permian Basin and Eagle Ford Shale.

The Company's planned acquisition of Delaware Basin properties from ExL Petroleum Management, LLC (“ExL”) remains on track to close by mid-August. While Carrizo continues to be pleased with the performance of the wells on the properties, ExL has encountered some operational delays, and Carrizo now expects fewer wells to be online at closing as compared to its previous guidance. Additionally, as the Company has continued to conduct its due diligence on the land and associated drilling requirements, it has confirmed that the leasehold obligations post closing are not burdensome. As a result, Carrizo has elected to adjust its near-term development plan on the acreage. The Company now plans to release and replace the existing rigs on the acreage earlier than previously planned. While Carrizo believes this will reduce costs and enhance the returns of its development program on the acreage, the adjusted timing is also expected to result in fewer wells being drilled and completed between closing and year-end. As a result of the updated development plan, Carrizo now expects six fewer gross operated wells on these assets to be on production by year-end 2017 relative to its previous guidance.

Primarily as a result of the updated drilling and completion plan on the ExL properties, the Company is reducing its 2017 drilling and completion capital expenditure guidance to $590-$610 million from $620-$640 million previously. The Company is no longer providing guidance for land and seismic capital expenditures given the limited visibility and highly discretionary nature of this spending.

Based on the changes to the planned drilling and completion schedule, Carrizo is decreasing its 2017 oil production guidance to 34,600-34,800 Bbls/d from 35,700-36,000 Bbls/d previously. Using the midpoint of this range, the Company’s 2017 oil production growth guidance equates to 35%. For natural gas and NGLs, Carrizo is adjusting its 2017 guidance to 81-83 MMcf/d and 5,900-6,000 Bbls/d, respectively, from 80-84 MMcf/d and 5,900-6,100 Bbls/d, respectively. For the third quarter of 2017, Carrizo expects oil production to be 35,400-35,800 Bbls/d, and natural gas and NGL production to be 73-77 MMcf/d and 5,900-6,100 Bbls/d, respectively. A full summary of Carrizo’s guidance is provided in the attached tables.

S.P. “Chip” Johnson, IV, Carrizo’s President and CEO, commented on the results, “The second quarter was an eventful one for Carrizo as we announced the largest acquisition in our history, approximately 16,500 net acres in the core of the Delaware Basin. Once the acquisition closes later this month, we will hold positions of scale in the core of two of the highest-return plays in North America, the Eagle Ford Shale and Delaware Basin.

“With the scale we now expect to have in these two plays, our plan is to focus our activity on these regions. As a result, we currently have active divestiture processes for our assets in the Marcellus, Utica, and Niobrara. We believe the resulting streamlined portfolio should lead to improved long-term returns from our development program as well as at the corporate level.

“Given the volatile nature of commodity prices as well as the expected closing of the ExL acquisition, we have materially increased our crude oil hedge position. Since the end of June, we have increased our 2018 crude oil hedge position to 18 MBbls/d from 6 MBbls/d previously, and have also added 6 MBbls/d in 2019. With the downside protection the hedges provide, we believe we can organically de-lever our balance sheet in 2018 even if prices were to weaken from current levels. We also believe we are positioned to run a free cash flow positive program in 2019 and beyond at current strip prices.

“The second quarter was another strong quarter for the Company operationally. Crude oil production increased 17% versus the prior quarter. This was led by the Eagle Ford, which was up 20% sequentially. As a result, crude oil production during the quarter materially outperformed the initial guidance that was provided back in May.”

Operational Update

In the Eagle Ford Shale, Carrizo drilled 23 gross (21.2 net) operated wells during the second quarter and completed 26 gross (21.6 net) wells. Crude oil production from the play was more than 30,600 Bbls/d for the quarter, up 20% versus the prior quarter. At the end of the quarter, Carrizo had 28 gross (26.6 net) operated Eagle Ford wells in progress or waiting on completion, equating to net crude oil production potential of approximately 10,000 Bbls/d. The Company is currently operating three rigs in the Eagle Ford, but plans to move one of its rigs to the Delaware Basin later this quarter. Carrizo expects to drill approximately 93 gross (80 net) operated wells and complete 93 gross (84 net) operated wells in the play during 2017.

Carrizo is continuing to test multiple completion optimization techniques aimed at further enhancing the returns of its development program. The Company remains pleased with the performance of its wells with 200 ft. frac stage spacing, and has expanded its pilot testing of even tighter frac stage spacing. Carrizo currently has approximately 30 wells online that were completed with 180 ft. stage spacing or tighter. The Company has also begun to test slickwater completions with an increased proppant concentration, and has recently completed 13 wells with approximately 2,000 lbs/ft. of proppant. This compares to its standard completion that utilizes approximately 1,600 lbs/ft. of proppant. Additionally, the Company has begun to test the potential for refracs on understimulated wells, such as some of those acquired in the Company's recent purchase from Sanchez Energy Corporation. The Company has pumped its first refrac on these properties, and completion is currently underway. Carrizo plans to provide an update on these pilots once it has sufficient production history.

Carrizo continues to test multiple initiatives aimed at determining the optimal development spacing on its acreage position. Recently, the Company has brought online three additional stagger-stack pilots testing new areas on the western side of its acreage position. The pilots are testing effective lateral spacing of 220-250 ft., and bring the total number of stagger-stack pilots online to 14.

In the Delaware Basin, Carrizo completed two operated wells during the second quarter. Crude oil production from the play was more than 900 Bbls/d for the quarter, down from approximately 1,100 Bbls/d in the prior quarter. While Carrizo is not presently operating a rig in the Delaware Basin, there are currently five operated rigs running on the properties to be acquired from ExL. Based on its updated interpretation of the drilling requirements on the acreage, Carrizo now expects to adjust the activity level to three rigs sooner than previously planned following the closing of the transaction. As a result, Carrizo expects to drill approximately 10 gross (8 net) operated wells and complete 16 gross (13 net) operated wells in the Delaware Basin during 2017. These estimates include 9 gross wells drilled and 13 gross wells completed on the properties to be acquired from ExL following the closing of the transaction.

Carrizo continues to be pleased with the well performance on the ExL properties. Since the beginning of the second quarter, three Wolfcamp A wells and three Wolfcamp B wells have been completed and brought online. Currently, there are 14 gross producing horizontal wells on the acreage with 8 additional wells currently drilling or waiting on completion. See below for the peak 30-day rates from the recent wells:

Additionally, the Davis 2728 Unit #1 well (Wolfcamp B) was brought online in late June, but has yet to achieve a peak 30-day rate. To date, the well has achieved a peak 15-day rate of 1,315 Boe/d (59% oil, 74% liquids) from an approximate 9,500 ft. lateral. The remaining two wells were brought online in late July and are still cleaning up.

In the Niobrara Formation, Carrizo did not drill or complete any operated wells during the second quarter. Crude oil production from the play was approximately 1,900 Bbls/d for the quarter, down from approximately 2,000 Bbls/d in the prior quarter due to the lack of new wells coming online. Carrizo is not currently budgeting any operated activity in the Niobrara during 2017, but expects to continue participating in non-operated activity within its focus area.

In the Utica and Marcellus, Carrizo did not drill or complete any operated wells during the second quarter. Crude oil production from the Utica was approximately 200 Bbls/d during the quarter, up from approximately 180 Bbls/d in the prior quarter. In the Marcellus, the Company’s production was 44.3 MMcf/d, down from 47.6 MMcf/d in the prior quarter as the Company elected to decrease its production in response to a relatively weaker local market price environment. Carrizo expects to continue to vary its Marcellus production during 2017 based on local market pricing. Carrizo has currently allocated a minimal amount of maintenance capital to the Utica and Marcellus during 2017.

Hedging Activity

Carrizo currently has hedges in place for more than 25% of estimated crude oil production for the remainder of 2017 (based on the midpoint of guidance). For the balance of the year, the Company has swaps covering approximately 10,500 Bbls/d of crude oil at an average fixed price of approximately $53.77/Bbl. For 2018, Carrizo currently has three-way collars covering 18,000 Bbls/d of crude oil with an average floor price of $49.08/Bbl, ceiling price of $60.48/Bbl, and sub-floor price of $39.17/Bbl. The Company has also begun to build its 2019 hedge position. For 2019, Carrizo currently has three-way collars covering 6,000 Bbls/d of crude oil with an average floor price of $47.80/Bbl, ceiling price of $61.45/Bbl, and sub-floor price of $40.00/Bbl.

Carrizo also has hedges in place for more than 20% of estimated natural gas production for the remainder of 2017. For the balance of the year, the Company has swaps covering 20,000 MMBtu/d of natural gas at an average fixed price of $3.30/MMBtu. (Please refer to the attached tables for details of the Company’s derivative contracts.)

Conference Call Details

The Company will hold a conference call to discuss 2017 second quarter financial results on Tuesday, August 8, 2017 at 10:00 AM Central Daylight Time. To participate in the call, please dial (888) 223-4515 (U.S. & Canada) or +1 (303) 223-4383 (Intl.) ten minutes before the call is scheduled to begin. A replay of the call will be available through Tuesday, August 15, 2017 at 12:00 PM Central Daylight Time at (800) 633-8284 (U.S. & Canada) or +1 (402) 977-9140 (Intl.). The reservation number for the replay is 21856090 for U.S., Canadian, and International callers.

A simultaneous webcast of the call may be accessed over the internet by visiting our website at http://www.carrizo.com, clicking on “Upcoming Events”, and then clicking on the “2017 Second Quarter Earnings Call” link. To listen, please go to the website in time to register and install any necessary software. The webcast will be archived for replay on the Carrizo website for 7 days.

Carrizo Oil & Gas, Inc. is a Houston-based energy company actively engaged in the exploration, development, and production of oil and gas from resource plays located in the United States. Our current operations are principally focused in proven, producing oil and gas plays primarily in the Eagle Ford Shale in South Texas, the Delaware Basin in West Texas, the Niobrara Formation in Colorado, the Utica Shale in Ohio, and the Marcellus Shale in Pennsylvania.

Statements in this release that are not historical facts, including but not limited to those related to capital requirements, free cash flow positive program, the ExL acquisition (including timing and effects thereof), monetization process matters and results, capital expenditure, guidance, rig program, production, average well returns, the estimated production results and financial performance, effects of transactions, targeted ratios and other metrics, timing, levels of and potential production, downspacing, crude oil production potential and growth, oil and gas prices, drilling and completion activities, drilling inventory, including timing thereof, resource potential, well costs, break-even prices, production mix, development plans, growth, hedging activity, the Company’s or management’s intentions, beliefs, expectations, hopes, projections, assessment of risks, estimations, plans or predictions for the future, results of the Company’s strategies and other statements that are not historical facts are forward-looking statements that are based on current expectations. Although the Company believes that its expectations are based on reasonable assumptions, it can give no assurance that these expectations will prove correct. Important factors that could cause actual results to differ materially from those in the forward-looking statements include assumptions regarding well costs, estimated recoveries, pricing and other factors affecting average well returns, results of wells and testing, failure of actual production to meet expectations, performance of rig operators, spacing test results, availability of gathering systems, costs of oilfield services, actions by governmental authorities, joint venture partners, industry partners, lenders and other third parties, actions by purchasers or sellers of properties, satisfaction of closing conditions and failure of the acquisition to close, failure of financing transactions to close, purchase price adjustment, integration and other risks and effects of acquisitions, market and other conditions, risks regarding financing, capital needs, availability of well connects, capital needs and uses, commodity price changes, effects of the global economy on exploration activity, results of and dependence on exploratory drilling activities, operating risks, right-of-way and other land issues, availability of capital and equipment, weather, and other risks described in the Company’s Form 10-K for the year ended December 31, 2016 and its other filings with the U.S. Securities and Exchange Commission. There can be no assurance any transaction described in this press release will occur on the terms or timing described, or at all.

(Financial Highlights to Follow)

CARRIZO OIL & GAS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

June 30,2017

December 31, 2016

Assets

Current assets

Cash and cash equivalents

$

2,228

$

4,194

Accounts receivable, net

72,401

64,208

Derivative assets

15,283

1,237

Other current assets

5,486

3,349

Total current assets

95,398

72,988

Property and equipment

Oil and gas properties, full cost method

Proved properties, net

1,475,131

1,294,667

Unproved properties, not being amortized

288,997

240,961

Other property and equipment, net

9,031

10,132

Total property and equipment, net

1,773,159

1,545,760

Deposit for pending acquisition of oil and gas properties

75,000

—

Other assets

20,262

7,579

Total Assets

$

1,963,819

$

1,626,327

Liabilities and Shareholders’ Equity

Current liabilities

Accounts payable

$

68,215

$

55,631

Revenues and royalties payable

45,860

38,107

Accrued capital expenditures

80,435

36,594

Accrued interest

22,076

22,016

Accrued lease operating expense

14,732

12,377

Derivative liabilities

2,012

22,601

Other current liabilities

25,730

24,633

Total current liabilities

259,060

211,959

Long-term debt

1,521,986

1,325,418

Asset retirement obligations

22,731

20,848

Derivative liabilities

13,652

27,528

Other liabilities

14,559

17,116

Total liabilities

1,831,988

1,602,869

Commitments and contingencies

Shareholders’ equity

Common stock, $0.01 par value, 180,000,000 shares authorized; 65,835,820 issued and outstanding as of June 30, 2017 and 90,000,000 shares authorized; 65,132,499 issued and outstanding as of December 31, 2016

658

651

Additional paid-in capital

1,677,930

1,665,891

Accumulated deficit

(1,546,757

)

(1,643,084

)

Total shareholders’ equity

131,831

23,458

Total Liabilities and Shareholders’ Equity

$

1,963,819

$

1,626,327

CARRIZO OIL & GAS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2017

2016

2017

2016

Revenues

Crude oil

$

142,806

$

91,608

$

270,898

$

159,604

Natural gas liquids

7,786

6,063

15,211

9,503

Natural gas

15,891

9,653

31,729

19,479

Total revenues

166,483

107,324

317,838

188,586

Costs and Expenses

Lease operating

36,048

23,114

65,893

46,789

Production taxes

7,143

4,623

13,351

8,054

Ad valorem taxes

1,073

454

4,040

2,524

Depreciation, depletion and amortization

59,072

51,966

113,454

111,543

General and administrative, net

11,596

19,624

33,299

40,927

(Gain) loss on derivatives, net

(26,065

)

52,235

(51,381

)

41,682

Interest expense, net

21,106

19,010

41,677

37,723

Impairment of proved oil and gas properties

—

197,070

—

471,483

Other (income) expense, net

204

1,162

1,178

1,069

Total costs and expenses

110,177

369,258

221,511

761,794

Income (Loss) Before Income Taxes

56,306

(261,934

)

96,327

(573,208

)

Income tax expense

—

(192

)

—

(313

)

Net Income (Loss)

$

56,306

($

262,126

)

$

96,327

($

573,521

)

Net Income (Loss) Per Common Share

Basic

$

0.86

($

4.46

)

$

1.47

($

9.79

)

Diluted

$

0.85

($

4.46

)

$

1.46

($

9.79

)

Weighted Average Common Shares Outstanding

Basic

65,767

58,806

65,479

58,583

Diluted

65,908

58,806

65,866

58,583

CARRIZO OIL & GAS, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(In thousands, except share amounts)

(Unaudited)

Common Stock

Additional Paid-in Capital

Accumulated Deficit

Total Shareholders’ Equity

Shares

Amount

Balance as of December 31, 2016

65,132,499

$

651

$

1,665,891

($

1,643,084

)

$

23,458

Stock-based compensation expense

—

—

12,063

—

12,063

Issuance of common stock upon grants of restricted stock awards and vestings of restricted stock units and performance shares

703,321

7

(24

)

—

(17

)

Net income

—

—

—

96,327

96,327

Balance as of June 30, 2017

65,835,820

$

658

$

1,677,930

($

1,546,757

)

$

131,831

CARRIZO OIL & GAS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2017

2016

2017

2016

Cash Flows From Operating Activities

Net income (loss)

$

56,306

($

262,126

)

$

96,327

($

573,521

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities

Depreciation, depletion and amortization

59,072

51,966

113,454

111,543

Impairment of proved oil and gas properties

—

197,070

—

471,483

(Gain) loss on derivatives, net

(26,065

)

52,235

(51,381

)

41,682

Cash received (paid) for derivative settlements, net

(261

)

27,300

1,258

78,463

Stock-based compensation expense, net

1,582

10,892

3,596

22,414

Non-cash interest expense, net

983

904

2,074

2,064

Other, net

1,147

1,226

2,767

2,342

Changes in components of working capital and other assets and liabilities-

Accounts receivable

(5,345

)

673

(8,094

)

(1,392

)

Accounts payable

7,825

(489

)

14,486

(19,200

)

Accrued liabilities

7,804

(7,109

)

5,650

(8,776

)

Other assets and liabilities, net

(301

)

(371

)

(982

)

(1,063

)

Net cash provided by operating activities

102,747

72,171

179,155

126,039

Cash Flows From Investing Activities

Capital expenditures - oil and gas properties

(166,876

)

(113,872

)

(290,625

)

(239,861

)

Acquisitions of oil and gas properties

(9,501

)

—

(16,533

)

—

Deposit for pending acquisition of oil and gas properties

(75,000

)

—

(75,000

)

—

Proceeds from sales of oil and gas properties, net

829

12,852

18,201

14,637

Other, net

(2,062

)

(256

)

(2,479

)

(873

)

Net cash used in investing activities

(252,610

)

(101,276

)

(366,436

)

(226,097

)

Cash Flows From Financing Activities

Borrowings under credit agreement

638,593

217,005

919,097

290,652

Repayments of borrowings under credit agreement

(479,293

)

(186,555

)

(723,797

)

(229,652

)

Payments of debt issuance costs

(4,318

)

(1,100

)

(4,368

)

(1,150

)

Payment of commitment fee for pending issuance of preferred stock

(5,000

)

—

(5,000

)

—

Other, net

(282

)

(245

)

(617

)

(552

)

Net cash provided by financing activities

149,700

29,105

185,315

59,298

Net Decrease in Cash and Cash Equivalents

(163

)

—

(1,966

)

(40,760

)

Cash and Cash Equivalents, Beginning of Period

2,391

2,158

4,194

42,918

Cash and Cash Equivalents, End of Period

$

2,228

$

2,158

$

2,228

$

2,158

CARRIZO OIL & GAS, INC.NON-GAAP FINANCIAL MEASURES(Unaudited)

Reconciliation of Net Income (Loss) (GAAP) to Adjusted Net Income (Non-GAAP)

Adjusted net income is a non-GAAP financial measure which excludes certain items that are included in net income (loss), the most directly comparable GAAP financial measure. Items excluded are those which the Company believes affect the comparability of operating results and are typically excluded from published estimates by the investment community, including items whose timing and/or amount cannot be reasonably estimated or are non-recurring.

Adjusted net income is presented because management believes it provides useful additional information to investors for analysis of the Company’s fundamental business on a recurring basis. In addition, management believes that adjusted net income is widely used by professional research analysts and others in the valuation, comparison, and investment recommendations of companies in the oil and gas exploration and production industry.

Adjusted net income should not be considered in isolation or as a substitute for net income (loss) or any other measure of a company’s financial performance or profitability presented in accordance with GAAP. A reconciliation of the differences between net income (loss) and adjusted net income is presented below. Because adjusted net income excludes some, but not all, items that affect net income (loss) and may vary among companies, our calculation of adjusted net income may not be comparable to similarly titled measures of other companies.

Reconciliation of Diluted Weighted Average Common Shares Outstanding (GAAP) to Adjusted Diluted Weighted Average Common Shares Outstanding (Non-GAAP)

Adjusted diluted weighted average common shares outstanding (“Adjusted Diluted WASO”) is a non-GAAP financial measure which includes the effect of potentially dilutive instruments that, under certain circumstances described below, are excluded from diluted weighted average common shares outstanding (“Diluted WASO”), the most directly comparable GAAP financial measure. When a net loss exists, all potentially dilutive instruments are anti-dilutive to the net loss per common share and therefore excluded from the computation of Diluted WASO. The effect of potentially dilutive instruments is included in the computation of Adjusted Diluted WASO for purposes of computing diluted adjusted net income per common share.

Three Months Ended June 30,

Six Months Ended June 30,

2017

2016

2017

2016

(In thousands, except per share amounts)

Net Income (Loss) (GAAP)

$

56,306

($

262,126

)

$

96,327

($

573,521

)

Income tax expense

—

(192

)

—

(313

)

Income (Loss) Before Income Taxes

56,306

(261,934

)

96,327

(573,208

)

(Gain) loss on derivatives, net

(26,065

)

52,235

(51,381

)

41,682

Cash received (paid) for derivative settlements, net

(261

)

27,300

1,258

78,463

Non-cash general and administrative expense, net

1,582

10,825

3,596

22,583

Impairment of proved oil and gas properties

—

197,070

—

471,483

Other (income) expense, net

204

1,162

1,178

(109

)

Adjusted income before income taxes

31,766

26,658

50,978

40,894

Adjusted income tax expense (1)

(11,722

)

(9,517

)

(18,811

)

(14,599

)

Adjusted Net Income (Non-GAAP)

$

20,044

$

17,141

$

32,167

$

26,295

Net Income (Loss) Per Common Share - Diluted (GAAP)

$

0.85

($

4.46

)

$

1.46

($

9.79

)

Effect of change from diluted WASO to adjusted diluted WASO

—

(0.06

)

—

(0.10

)

Income tax expense

—

—

—

(0.01

)

Income (Loss) Before Income Taxes

0.85

(4.40

)

1.46

(9.68

)

(Gain) loss on derivatives, net

(0.40

)

0.88

(0.78

)

0.70

Cash received (paid) for derivative settlements, net

—

0.46

0.02

1.33

Non-cash general and administrative expense, net

0.03

0.18

0.05

0.38

Impairment of proved oil and gas properties

—

3.31

—

7.96

Other (income) expense, net

—

0.02

0.02

—

Adjusted income before income taxes

0.48

0.45

0.77

0.69

Adjusted income tax expense (1)

(0.18

)

(0.16

)

(0.28

)

(0.25

)

Adjusted Net Income Per Common Share - Diluted (Non-GAAP)

$

0.30

$

0.29

$

0.49

$

0.44

Diluted WASO (GAAP)

65,908

58,806

65,866

58,583

Effect of potentially dilutive instruments

—

663

—

643

Adjusted Diluted WASO (Non-GAAP)

65,908

59,469

65,866

59,226

__________

(1) Adjusted income tax expense is calculated by applying the Company’s estimated annual effective income tax rates applicable to the adjusted income before income taxes, which were 36.9% and 35.7% for the three months ended June 30, 2017 and 2016, respectively, as well as for the six months ended June 30, 2017 and 2016, respectively.

Adjusted EBITDA is a non-GAAP financial measure which excludes certain items that are included in net income (loss), the most directly comparable GAAP financial measure. Items excluded are interest expense, depreciation, depletion and amortization and items that the Company believes affect the comparability of operating results such as items whose timing and/or amount cannot be reasonably estimated or are non-recurring.

Adjusted EBITDA is presented because management believes it provides useful additional information to investors and analysts, for analysis of the Company’s financial and operating performance on a recurring basis and the Company’s ability to internally generate funds for exploration and development, and to service debt. In addition, management believes that adjusted EBITDA is widely used by professional research analysts and others in the valuation, comparison, and investment recommendations of companies in the oil and gas exploration and production industry.

Adjusted EBITDA should not be considered in isolation or as a substitute for net income (loss), net cash provided by operating activities, or any other measure of a company’s profitability or liquidity presented in accordance with GAAP. A reconciliation of net income (loss) to adjusted EBITDA to net cash provided by operating activities is presented below. Because adjusted EBITDA excludes some, but not all, items that affect net income (loss), our calculations of adjusted EBITDA may not be comparable to similarly titled measures of other companies.

Discretionary cash flows are a non-GAAP financial measure which excludes certain items that are included in net cash provided by operating activities, the most directly comparable GAAP financial measure. Items excluded are changes in the components of working capital and other items that the Company believes affect the comparability of operating cash flows such as items that are non-recurring.

Discretionary cash flows are presented because management believes it provides useful additional information to investors for analysis of the Company’s ability to generate cash to internally fund exploration and development, and to service debt. In addition, management believes that discretionary cash flows is widely used by professional research analysts and others in the valuation, comparison, and investment recommendations of companies in the oil and gas exploration and production industry.

Discretionary cash flows should not be considered in isolation or as a substitute for net cash provided by operating activities or any other measure of a company’s cash flows or liquidity presented in accordance with GAAP. A reconciliation of net cash provided by operating activities to discretionary cash flows is presented below. Because discretionary cash flows excludes some, but not all, items that affect net cash provided by operating activities and may vary among companies, our calculation of discretionary cash flows may not be comparable to similarly titled measures of other companies.